Car Loan Guide

How car loans work

A car loan is a secured installment loan. The vehicle is collateral, so if you stop paying, the lender can repossess it. You borrow a set amount, pay interest, and repay the loan over a term that usually ranges from 24 to 84 months.

New-car loans vs. used-car loans

New-car loans often have lower interest rates and longer available terms, but new cars depreciate rapidly. Used-car loans may have slightly higher rates, but because the total amount borrowed is lower, you often pay less overall. Certified pre-owned vehicles sometimes qualify for special financing.

Dealer financing vs. bank or credit union

Dealers can be convenient, but they sometimes mark up the rate the lender offers. Banks and credit unions may offer lower rates, especially if you already have a relationship. Getting preapproved before you shop gives you a benchmark to evaluate dealer offers.

The long-term trap

Stretching a loan to 72 or 84 months lowers your monthly payment, but it increases the total interest and can leave you owing more than the car is worth. Try to keep the term at 60 months or less if your budget allows.

How to get a better auto loan rate

• Improve your credit score before applying.
• Save for a larger down payment to reduce the amount financed.
• Shop around with multiple lenders within a 14-day window so credit inquiries count as one.
• Consider a co-signer if your credit is limited.

Compare lenders

See our auto loan comparison for a side-by-side look at lenders, terms, and features.

Calculate your car payment

Use our auto loan calculator or car payment calculator to see what fits your budget before visiting a dealership.